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Hello from Brussels. A little more than the usual amount of concern here as to what the Americans are up to. First the release of a big report on exactly what Washington’s problems are with the World Trade Organization appellate body that caused them to put it into indefinite suspension in December, which we look at in Tall Tales below. Then a story by Bloomberg about the US planning to raise its permissible global tariffs. Meanwhile, EU officials continue to hunt desperately for something to offer the White House in the mini-deal that Ursula von der Leyen and Donald Trump promised after their meeting last month.
Today’s main piece is about developments in an innovative case against Chinese subsidies outside China, while our chart of the day looks at steering imports to the US.
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Hunting down handouts in the Belt and Road
If you’re a European or an American company and you’re looking aghast at China’s great global network of companies taking your business, what do you do? Well, you try to discipline the subsidies used to construct it wherever they are spent, one glass-fibre factory at a time.
Alert and loyal readers will remember that in the autumn we looked at some intriguing cases. One of them (technically two actions against separate products) involved European glass-fibre industries bringing EU antisubsidy and antidumping actions against Chinese operations that had set up production in Egypt.
The innovative part is going after Chinese subsidies outside China and thereby directly aiming at a central element in its growth strategy, the Belt and Road project, which aims to export industrial capacity outside China. Antisubsidy actions are usually taken only by a government supporting industry inside its own country.
Glass fibre doesn’t sound the sexiest of products. But it’s like a cheaper version of carbon fibre: you can add it to plastics to make light, strong materials for use in products such as wind turbine blades, boat hulls, body panels for trucks, skis, snowboards, all sorts. It’s a bit like the big trade fights over solar cells nearly a decade ago. European producers are battling for a market position in an emergent technology that they claim could be of strategic importance.
We make no judgment ourselves as to whether European glass-fibre producers are genuinely being damaged by subsidised imports, nor whether it might be better in the long run for the EU to have cheaper imports of such industrial inputs rather than domestic production. But whatever the public policy arguments, it’s an innovative legal strategy.
Glass fibre doesn’t sound the sexiest of products but you can add it to plastics to make strong materials for use in products such as wind turbine blades © Bloomberg
The glass-fibre manufacturers’ case centres on a Chinese company called Jushi, which opened in an industrial zone in Egypt in 2012 and expanded hugely in 2016. It is right by the Suez Canal: there’s not much doubt it’s targeting the European market, nor that it’s big enough to have a serious impact on EU competitors. A comfortable majority of Jushi’s exports are EU-bound, while glass-fibre products from Egypt nearly tripled their share of the EU market between 2015 and 2018, from 4.6 per cent to 12.8 per cent. EU domestic production market share of glass-fibre products sold in the bloc dropped from 65.5 per cent to 56 per cent over the same period.
According to a report in 2016 in China Daily, the news outlet run by the Communist party, Jushi said one of its rationales for going abroad was precisely to avoid EU antidumping and antisubsidy actions against production in China that were imposed some years ago, which at least wins points for honesty (we asked Jushi for comment this week but got no reply).
The case alleges that not only is Jushi receiving subsidies from the Egyptian government itself, but that Chinese state banks are implicitly backing that production by lending to Egyptian state-owned banks at subsidised rates for the benefit of Chinese companies.
So, where have we got to? Last month the European Commission said there was enough evidence of subsidy for glass-fibre fabrics to start registering imports — a way of collecting data to assess how much injury they are causing to the domestic industry. Registration is an important stage. If the complaint is upheld, antisubsidy duties can be retroactively applied. This often has the effect of deterring imports from this point.
The case is a determined attempt given the complexities. China’s government subsidises its companies in myriad ways, and assessing them accurately is fiendishly hard — much more so than just comparing prices, which is what generates antidumping margins. How do you quantify the implicit subsidy from lending by Chinese state-owned banks, given the different risks attached to different companies? You need a counterfactual, which is hard to calculate. The case hinges on being able to do so.
There’s a long way to go. EU Commission and legal service officials are sure this case will go to litigation in the EU courts and possibly the WTO. But the complainants have at least started creating a path to pursue Chinese state largesse outside China. As this directly targets China’s growth strategy overseas, it could set an important precedent. As such we’ll keep watching progress.
Charted waters
Huida Manufacturing, the Chinese automotive steering firm, was one of the first companies to be issued with a “force majeure” certificate by the Chinese government this month thanks to the coronavirus — an act of God clause that can allow companies to escape contractual obligations. It’s a small silver lining for an industry that has seen exports to the US from most areas except North America fall of late.
Tall Tales of Trade
Antidumping lawyers such as current USTR Robert Lighthizer spent decades making the technical argument for zeroing for the steel industry © AFP via Getty Images
Not an untruth as such but a bold claim that has caused many a sardonic eyebrow, not just ours, to be raised. This week USTR released a report (121 pages plus annexes) pulling together its longstanding objections to over-reach by the WTO appellate body. The report doesn’t actually propose a way out: not since dealing with a toddler have we encountered so high a ratio of issued complaint to proffered solution.
The best bit, drawn to our attention by the redoubtable Simon Lester of the Cato Institute, was decrying the AB repeatedly ruling against “zeroing” — the practice of ignoring data in an antidumping action that do not support the complainant’s case — by calling it a “common-sense” methodology.
You can make a technical argument for zeroing: antidumping lawyers such as current USTR Robert Lighthizer, spent decades doing so for the steel industry. But common sense? We’ve never encountered anyone who has come across the concept of zeroing for the first time react with anything except bafflement. There’s a widespread belief among other WTO member countries that zeroing is a daft idea. Thus this constitutes an interesting category of common sense that is not commonly held. We appreciate the effort, but don’t think this opus of objection is going to convince anyone.
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Source: Economy - ft.com
